An analysis of nifty index and construction of optimal portfolio using sharpe single index model Ms. Shajahan Umaya Salma*, Pranavamoorthy R.C.** *Assistant Professor, Sona College of Technology **Student, Sona College of Technology Online published on 11 September, 2014. Abstract Behavioural Finance is the combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications. The study of behavioural economics includes how market decisions are made and the mechanisms that drive public choice. This research takes into the consideration of human decisions that cause the changes in the behaviour of the stock prices daily. The main focus of this research is to construct anoptimal portfolio in Indian stock market with the help of the Sharpe single index model. Portfolio construction is an important process of the investors for investment in the equity market. A good combination of portfolio will give maximum return for a particular level of risk. In this research, 50 stocks that range from various sectors like Pharmaceuticals, IT, Banking, Automobiles, Cements, Paints, Infrastructure and Oil & Refineries sectors have been taken into consideration and these stocks are constituent of the NSE Nifty index. The monthly data for all the stocks for the period of January 2009 to December 2013 have been considered. The proposed method formulates a unique cut off point (Cut off rate of return) and selects stocks having excess of their expected return over risk free rate of returnsur passing this cut-off point. Percentage of investment in each of selected stocks is then decided on the basis of respective weights assigned to each stock depending on respective beta value, stock movement variance unsystematic risk, return on stock and the cut off rate of return. The study finds that only 14 company stocks constitute the optimum portfolio and they are HCL, Asian Paints, Lupin, Ultratech Cements, Dr. Reddy's Labs, Tata Motors, Sun Pharma, Cipla, TCS, Wipro, Ambuja Cements, Hero Motocorp, ITC and Grasim. The relationship between the total risk and return of the optimum portfolio obtained is positive. Top |